May 23 (Bloomberg) -- Greece’s Cabinet endorsed another
package of spending cuts and state asset sales after the
worsening bond-market selloff across the euro region forced the
government to step up austerity measures.

Finance Minister George Papaconstantinou is seeking
financial advisers to sell stakes in Hellenic Telecommunications
Organization SA, Public Power Corp SA and a number of other
companies, according to an e-mailed statement in Athens today.
The government also approved revenue and spending measures to
reach its 2011 deficit target after falling short of its tax
collection goals.

“The Cabinet today reaffirmed its determination to
continue with the fiscal consolidation by taking additional
measures of over 6 billion euros, or 2.8 percent of gross
domestic product, to achieve the 7.5 percent deficit target for
2011,” Papaconstantinou said in the statement.

More than a year after European policy makers approved a
750 billion-euro ($1.1 trillion) bailout blueprint to stem the
sovereign crisis, bond yields in debt-laden peripheral countries
are at record highs and officials are floating plans to extend
Greek repayments. Italy had its credit-rating outlook put on
negative review by Standard & Poor’s on May 20, hours after
Fitch Ratings cut Greece three levels. Spain’s ruling party was
routed in local voting yesterday.

The extra yield investors demand to hold Italian 10-year
bonds over German bunds rose to a four-month high of 179 basis
points after S&P said it may cut the country’s credit rating.
Spain’s yield spread rose to 251 basis points, also the highest
since January, after the ruling socialists suffered their worst
defeat in 30 years in local elections in a voter backlash
against austerity.

Market Language

“The bond market is the only language policy makers will
listen to,” Axel Merk, chief investment officer for Merk
Investments LLC said in an interview with Bloomberg Television’s
Betty Liu. “Once the bond markets impose austerity on the
country that’s when they follow through, when there is a backing
off, when things are going better, that’s when they lapse.”

European Union demands may require Greece to sell 15
billion euros of assets by the end of 2012, a year ahead of
schedule, in order to win a new three-year loan package, a
person familiar with the talks said today. EU Economic and
Monetary Affairs Commissioner Olli Rehn said creating a vehicle
to manage Greece’s privatization program was being considered.

Trust Fund

“The possibility to create a trust fund or a privatization
agency is one option we’re exploring among several,” Rehn told
reporters in Vienna today.

The government said it would sell its stake in Hellenic
Postbank SA and the country’s ports in the first phase of the
asset-sale program. The state’s direct 34 percent stake in
Postbank has a market value of about 275 million euros. The
government also said it would create a sovereign-wealth fund
composed of state assets to accelerate the sale process.

The government plans to complete the stake of Hellenic
Postbank by the end of the year, and to sell 75 percent stakes
in Piraeus Port Authority and Thessaloniki Port Authority SA. It
also intends to extend the concession for Athens International
Airport this year.

Greece owns a 20 percent stake in Hellenic
Telecommunications Organization, or OTE, and has the right to
sell a 10 percent stake to Deutsche Telekom AG, which already
has a 30 percent holding. The government is seeking financial
advisers to exercise the put option, and for the sale of a
further 6 percent of the company, the finance ministry said.

‘Refinancing Hole’

“With an economy still in recession, it’s very difficult to
keep piling on larger amounts of fiscal tightening,” David
Mackie, London-based chief European economist at JPMorgan Chase
& Co., said in a conference call today. “I think instead we are
moving to an environment where asset sales are going to be used
as the key means of signaling Greece’s commitment here.”

Greece has a “refinancing hole” of 30 billion euros for
both 2012 and 2013, according to economist Nouriel Roubini. The
nation could restructure by issuing debt with lower interest
payments and extend maturities as it’s unlikely the nation will
“regain market access for the next five to 10 years,” he said
in an interview last week.

The demands on Greece come amid renewed pressure on Spain
and Italy, in addition to Ireland and Portugal, the other two
euro nations that received bailouts.

Election Rout

Spanish Prime Minister Jose Luis Rodriguez Zapatero’s
Socialist party had its worst electoral setback in local
elections since the country’s 1979 return to democracy as voters
punished the ruling party for austerity policies. The shift in
power in some key regions may spark doubts over Spain’s ability
to contain its deficit as newly elected officials may reveal
weaker finances than their predecessors reported.

Euro-area governments also want bondholders to buy new
Greek bonds to replace maturing debt, stopping short of the debt
extension, or “reprofiling,” floated by Luxembourg Prime
Minister Jean-Claude Juncker last week, the person said.

Such a postponement of debt redemptions would be classified
as a default, Fitch Ratings said last week when it cut Greece’s
credit rating by three levels to B+.

Pressure on peripheral bonds isn’t letting up because
“discussion on Greece will continue, Italy’s negative outlook
will reinforce risk aversion and the result of Spanish regional
elections will foster speculation that the newly appointed
administrations will unveil ‘hidden debt,’” Luca Cazzulani,
fixed income strategist at UniCredit Research, said in a note to
investors.

Declines in so-called euro-region peripheral bonds have
deepened amid speculation that Greece will need to restructure
its debt as it struggles to avoid default. The nation’s
securities have lost 13 percent this year, with Portugal losing
14 percent and Ireland 7.1 percent, according to indexes from
Bloomberg and the European Federation of Financial Analysts
Societies.

The euro fell as much as 1.4 percent to $1.3970, weakening
to less than $1.40 for the first time since March 18, and
depreciated to 1.23235 Swiss francs, a record.